S&P bullish on Nigerian banks’ growth

Nigerian political stability and economic growth after a loan clean-up by the Asset Management Corporation of Nigeria (AMCON) created to buy bad debt, will spur expansion in the country’s banking industry this year, according to Standard & Poor’s.

“Nigerian banks have good prospects in 2013, thanks to strong economic growth and currently broad political stability,” S&P analysts, led by Matthew Pirnie in Johannesburg, wrote in a report yesterday. “We believe the banks will enter an expansionary phase in 2013, spurred by increasing competition and relatively clean balance sheets.”

The Central Bank of Nigeria (CBN), implemented banking reforms following a debt crisis in 2008 and 2009, and fired eight chief executives of the country’s 24 banks and set up AMCON to buy lenders’ non-performing loans and stabilise the industry. The corporation spent N5.6 trillion ($35 billion) in 2011 to acquire the debt, Chief Executive Officer Mustafa Chike-Obi said in December.

Nigeria’s economy will probably expand 6.8 per cent this year, compared with an estimated 6.6 per cent in 2012, the National Bureau of Statistics said last month.

For lenders, “such expansion carries risks, however, including a dilution of capital if loans are extended rapidly,” said S&P. “Credit risks may mount, too, exacerbating the risk of foreign-currency lending, real-estate price bubbles, and corporate concentrations, although we don’t believe these risks are likely to materialise this year.”

The Bloomberg Nigerian Stock Exchange Banking 10 Index (NGSEB10), which tracks the performance of the nation’s largest lenders by market value, has advanced 24 per cent this year and gained 1.1 per cent to 422.30.

“Corporate governance is a long-standing constraint on ratings, and low transparency would in our view raise risks,” according to S&P. “Nigeria’s narrow economic structure also exposes the economy, and the banking sector, to a fall in oil prices or production,” the rating agency, added.